Petro One and Goldstrike Announce Oil & Gas Drilling Joint Venture

VANCOUVER, BRITISH COLUMBIA–(Marketwired – Nov. 26, 2013) –Petro One Energy Corp. (TSX VENTURE:POP)(PINKSHEETS:CUDBF)(FRANKFURT:C6K1) and Goldstrike Resources Ltd. (TSX VENTURE:GSR)(PINKSHEETS:APRAF)(FRANKFURT:KCG1) are pleased to announce plans for a joint venture to drill a series of oil wells on leases controlled by Petro One in Southwestern Manitoba and Southeastern Saskatchewan. The initial program will consist of up to three test wells to be drilled at South Reston, Kirkella and Milton, and the arrangement provides for a series of success contingent option wells thereafter.

Discussions for the proposed joint venture (the “JV”) were initiated due to continuing poor market conditions for junior resource companies. Petro One’s geological team has identified numerous highly prospective targets for oil wells on leases controlled by it, but management has been reluctant to turn to the equity markets in the current state, and has therefore focused on farm-outs and potential joint ventures as sources of non-dilutive financing to drill additional oil wells. Petro One has farmed out one property and sold another this year, and it is currently cash-flow positive (exclusive of exploration costs) due to the success of oil wells in the Milton and Bromhead areas of Saskatchewan. However, it will require additional funds to continue to explore and develop its properties, and, accordingly, is in discussions with a number of prospective partners. That business model has led to the proposed JV and a number of other opportunities which are currently the subject of ongoing discussions with third parties.

Background to the Joint Venture

Petro One has a significant investment in Goldstrike in the form of shares and warrants received as option payments on the Lucky Strike and BRC properties in Yukon. Consequently, success for Goldstrike means success for Petro One. When the concept of a JV between the companies was conceived, it quickly became clear that the potential benefit to both companies is considerable and that the downside is limited. While Petro One currently has approximately $900,000 in cash and is generating sufficient positive cash flow to pay its overhead, its available funds will not permit it to drill and complete the proposed additional wells in the near term. The proposed JV will permit Petro One and Goldstrike to drill at least two and possibly three oil wells by splitting drilling costs 50/50, sharing both the risk and potential reward.

For Goldstrike, the JV provides the potential to generate cash flow to sustain operations over the long term without resort to the equity markets. Goldstrike holds properties of significant merit in Yukon, the Plateau South property in particular, and has approximately $1,350,000 in cash. However, that amount will finance only a modest drilling program and management is concerned that if it spends its remaining cash reserves at Plateau South next summer, in the current market it will have difficulty raising the considerable funds needed to move the property to the next level without experiencing significant dilution. In the meantime, Goldstrike’s cash reserves will continue to be eroded by overhead costs and it will have no news flow to attract investors. Goldstrike cannot afford to take that risk. Without access to additional funding or significant cash flow from the JV, Goldstrike almost certainly has to look at foregoing a program in 2014 and wait for the market to turn around.

The proposed JV is designed to give Goldstrike a real opportunity to become cash flow positive over the next several months, with potential for significant upside after that. If it is able to achieve financial self-sufficiency, Goldstrike will have the ability to wait out the market and finance its next program at Plateau South in the next year or so, hopefully at a much higher share price and or from potential cash flow from operations in Saskatchewan and/or Manitoba if the JV is successful. The Plateau South claims are currently in good standing with the Yukon Government until March 30, 2021 and 2022, and management is of the view that the prudent course of action is to suspend work there until market conditions improve or the JV results in significant positive cash flow. The JV does not represent a new direction for Goldstrike, but does provide it with the potential for near-term success, significant upside with 19 net drill locations, year round operations and news flow.

The Joint Venture Terms

Terms for the proposed JV are set out in a Letter of Intent (“LOI”) settled between the companies on November 22, 2013, and reflect the significant investment made by Petro One in acquiring the three properties which are the subject of the JV and completing comprehensive geological programs on them. Those historic costs are in the range of $3,000,000 in the aggregate, and results of past work include two producing oil wells at Milton and the identification of highly prospective targets at South Reston and Kirkella where the National Instrument 51-101 (“NI 51-101”) Report prepared for Petro One in 2010 allocated unrisked prospective resources of 233,000 barrels of oil (“bbl”) to South Reston and 231,000 bbl to Kirkella (news release July 15, 2010).

The LOI provides that costs of drilling all test wells will be split 50/50 between the two companies, which reflects Petro One’s confidence in the targets it has chosen. The LOI also provides that the costs of completing the first two test wells will be borne 100% by Goldstrike to bring its ultimate investment in the projects closer inline with Petro One’s investment to date. The cost of each of those wells is estimated to be approximately $420,000 (drilling) and $440,000 (completion). Since the test wells will only be completed if drill stem tests and open hole core logging indicate significant potential for economic success, the majority of the risk will be shared by the two companies at the drilling stage. Drilling costs include costs of casing and cementing or abandonment, as circumstances dictate. Completion costs include cased hole logging and perforating, and production testing. Each company will have a 50% working interest in each completed well.

The Joint Venture Program

The JV program provides for an initial test well at South Reston (Well #SR1) as soon as regulatory approvals are received. If that well is successful, the companies will drill a second well at South Reston where 19 net drill locations have been identified on land controlled by Petro One. Goldstrike will have the option to participate in all of those wells subject to industry standard conditions. If the South Reston test well is not successful, the companies will move to Kirkella, where the potential for success is believed to be strong, but where there is space for only one well. If the Kirkella test well (Well #K1) is not successful, Goldstrike will have the right, but not the obligation, to participate in a well at Milton (Well #M1). If a well is drilled at Milton, which will only be the case if the first two wells are both abandoned and If Goldstrike exercises its option, all costs of drilling and completion will be shared 50/50 by Petro One and Goldstrike.

The wells are planned to be drilled that order because the potential for a big producer is greater at South Reston (with multiple targets) and Kirkella, while the potential for economic success at a more modest production rate has already been proven at Milton. The target formations are the Lodgepole (primary) and Tilston (secondary) at South Reston, the Lodgepole at Kirkella and the Lower Viking at Milton. There is also potential for Bakken and Success targets in some of the drill locations identified at Milton. An NI 51-101 report prepared for Petro One in 2011 credited the company with a prospective resource of 798,000 bbl in the shallow Middle Bakken sand located only 140 m below the Viking (news release November 14, 2011). However, if a Milton well is drilled by the JV, the principal focus will be on the target formation with the highest potential for economic success, and that will mean a focus on the Lower Viking target.The JV program may be summarized as follows:

1.

Drill Well #SR1 and either:

(a)

case and test Well #SR1, and:

(i)

if initial production testing indicates a minimum of 30 bbl/day, Goldstrike will be obliged to complete that well and drill Well #SR2, with options to drill subsequent wells at South Reston; or

(ii)

if initial production testing indicates a minimum of less than 30 bbl/day, Goldstrike will have the option of:

(A)

completing Well #SR1; or

(B)

capping/suspending Well #SR1 and drilling Well #K1 at Kirkella; or

(b)

abandon it, in which case Goldstrike will be obliged to drill Well #K1 at Kirkella.

2.

If the companies proceed to drill Well #K1, they will on completion of drilling either:

(a)

case and test Well #K1, and:

(iii)

if initial production testing indicates a minimum of 30 bbl/day, Goldstrike will be obliged to complete Well #K1 and have the option to also complete Well #SR2 (by Oct. 15, 2014) if it has been suspended; or

(iv)

if initial production testing of Well #K1 indicates a minimum of less than 30 bbl/day, Goldstrike will have the option of:

(A)

completing Well #K1; or

(B)

capping/suspending Well #K1 and completing Well #SR1; or

(C)

capping/suspending Well #K1 and drilling a well at Milton; or

(b)

abandon Well #K1, in which case Goldstrike will have the option to:

(i)

go back and complete Well #SR1 (by Oct. 15, 2014) if it has been suspended; or

(ii)

drill a well at Milton.

3.

If the companies proceed to drill Well #M1, they will on completion of drilling either complete the well or abandon it.

Financial Aspects of the Joint Venture

Goldstrike will earn its interest on a well by well basis. If Goldstrike fails to complete any well, it earns no interest in that well. The LOI also provides for a $50,000 payment by Goldstrike to Petro One prior to commencement of Well #SR1 to partially reimburse Petro One for expenses incurred at South Reston. That payment will be refunded to Goldstrike (or applied to Goldstrike’s share of costs for a Milton well) if Goldstrike spuds a well on section 22 (Milton) by October 31, 2014 or Goldstrike cannot spud a well on section 22 because Petro One has farmed out rights to such a well to a third party. The LOI also provides that Goldstrike will not be obligated to make any more option payments in respect of the Lucky Strike and BRC mineral claims, but will be deemed to have earned its interest in those two properties as of the rig release date for the second well drilled as part of the JV. In any event, the time for making option payment otherwise due on November 1, 2013 to maintain Goldstrike’s option on the BRC property has been extended to November 1, 2016 due to current market conditions.

The respective costs of the JV participants are summarized in the following tables: